July 28 (Bloomberg) -- Growth in Chinese industrial
companies’ profits slowed in June as the economy cooled, costs
rose and prices fell on moderating demand and overcapacity.

Net income increased 6.3 percent from a year earlier to
502.4 billion yuan ($82 billion), the Beijing-based National
Bureau of Statistics said yesterday, down from a 15.5 percent
pace in May. Profit from main business operations fell 2.3
percent after an 8.8 percent gain the previous month, it said.

China’s stocks fell for a third day on July 26 on concern
the nation’s growth will slow further after the government
ordered cuts to production capacity in 19 industries to tackle
oversupply that’s hurting prices and profits. At the same time,
the State Council this week offered limited support for the
world’s second-biggest economy, saying the nation will
accelerate railway construction, give tax breaks for small
companies and cut fees for exports.

“In terms of policy, one thing is clear -- there will be
no stimulus package,” Zhu Haibin, chief China economist at
JPMorgan Chase & Co., said in an interview in Beijing on July
26. The government is trying to make fiscal policy more
effective by using savings from curbs on administrative spending
and extravagance for “stimulus-style fiscal policies such as
tax cuts for small companies and expanding VAT reform,” he
said.

On monetary policy, the central bank is seeking to
“activate the existing credit stock” by squeezing speculative
lending and directing funds to support the real economy, he
said.

Slowing Sales

Industrial companies’ profits in the first six months of
the year rose 11.1 percent to 2.58 trillion yuan, down from a
12.3 percent gain in the January-May period, and sales rose 11.4
percent to 47.8 trillion yuan, yesterday’s data showed.

Profit from main business operations, a measure the
statistics bureau started releasing last month, rose 7.2 percent
in the first six months, slowing from an 11.4 percent pace in
the January-May period.

The report covers companies with annual sales of 20 million
yuan and more in 41 industry categories. Among those, 30
reported higher profits and one showed a loss, the NBS said.

The moderation in profit growth was due to a slowdown in
sales gains, higher raw-material costs and a high comparative
base in June last year, He Ping, a statistics bureau official,
said in an analysis of the data posted on the website.

Missed Target

The State Council, headed by Premier Li Keqiang, last week
announced a raft of measures to help the economy amid increasing
signs growth will ease for a third quarter, putting the
government at risk of missing its annual expansion target for
the first time since 1998. The previous week, the Ministry of
Finance urged local authorities to speed up their budgetary
spending and make sure their unused funds at the end of this
year are lower than at the end of 2012.

The Ministry of Industry and Information Technology last
week ordered more than 1,400 companies in 19 industries
including steel, ferro alloys, and cement, to cut excess
production capacity this year, an indication the government is
pursuing pledges to restructure the economy even as growth
slows.

“More supportive policies are in the pipeline, and many of
them will be integrated as part of structural reforms,” Shen
Jianguang, chief Asia economist at Mizuho Securities Asia Ltd.,
said in a July 26 research note. “There is no conflict between
stabilizing growth and promoting structural reforms, as elements
of expansionary policies can be identified within the structural
reforms.”

Quarterly Growth

Profits in coal extraction and washing slumped 43 percent
in the first six months, yesterday’s report showed, as prices
slumped and output declined. Earnings in non-ferrous metals
extraction, including copper, aluminum and lead, fell 9 percent
while and non-ferrous metals smelting and processing dropped
14.5 percent.